There always seems to be some confusion regarding the tax treatment
relating to subsistence allowances.
The confusion is understandable because
the wording in the legislation is not absolutely clear. Although the South
African Revenue Service (SARS) has done a lot to create clarity as to the
intended treatment in the employees` tax guidelines, there still seem to be
some gaps.
A subsistence allowance is generally accepted as being an amount of money
which is given to an employee when he or she is required to spend time away
from home overnight to fulfil his or her work duties. Some employers pay
them and others don`t, generally because they pick up all the employee`s
actual expenses whilst they are out of town in any event.
According to SARS` guidelines, you must not treat a subsistence allowance
as part of your employee`s remuneration package - it must be paid over and
above the package agreed with your employee in his or her letter of
appointment or increase notification. However, the amount must appear on
your employee`s IRP 5 (employees` tax certificate).
If the allowance exceeds the amounts set out below, you must withhold tax
from the allowance and your employee will need to claim his actual
expenses, whilst away from home, as a deduction on his tax return in order
to benefit from some tax relief.
If you pay your employee amounts which do not exceed the amounts set out
below, the amounts paid will be considered to have been spent by the
employee regardless of the actual expenditure, and you need not deduct tax
from the subsistence allowances you have paid to your employee during the
year. (You would, however, still have to disclose the amount on the IRP 5).
The main requirement is that the employee must spend at least one night
away from home. The allowance which is deemed to have been spent is a daily
amount. So if your employee leaves today and returns tomorrow the tax free
allowance will be two times the relevant amount set out below. In addition,
the tax free allowance will not apply if your employee has accepted
employment away from his or her usual home. Thus, it can`t apply to people
who for example work on oil rigs, or contracts away from home for defined
periods.
So, what are the amounts:
n R150 a day if you do not provide him or her with accommodation, that is
he or she stays with friends or you expect him or her to pay for their own
accommodation out of the allowance;
n US$120 a day for each day that the employee is outside South Africa,
Lesotho, Namibia and Swaziland. You may give this amount tax free to cover
expenses over and above accommodation, provided your employee does not
spend a continuous period of more than six weeks outside the country; and
n R65 a day in any other case. This may be paid even if you cover all your
employees` costs whilst away from home. This amount is deemed to have been
spent on things like if your employee needs to put his or her dog in
kennels, or pay for additional security for his home and other such sundry,
but unavoidable expenses.
The key is to make sure you pay the right amounts so that your employee
does not get taxed.